JobCentre Plus in Stratford will be contacting affected claimants about Universal Credit in the coming weeks

Benefit claimants could be forced into using “illegal loan sharks” due to the introduction of Universal Credit across the borough from this week, Sir Robin Wales has warned.

Newham’s mayor said he had “grave concerns” about the controversial means-tested benefit – which merges existing benefits and tax credits into a single monthly payment – which came into effect in Newham on Monday.

In a statement he said the government had “failed to listen” to the issues raised about the scheme and claimed it would impose “real hardship” on some of the borough’s most vulnerable residents.

He added: “In an economy rife with low pay, expecting our poorest residents to rely on a savings buffer – which many may not have – is unreasonable.

“Evidence from areas that already have Universal Credit suggests this led to the use of high-cost payday lenders or even worse illegal loan sharks to make up shortfalls when waiting for their benefits.”

It takes several weeks for recipients to receive their first Universal Credit payment, which includes money for basic living costs and rent, leading to concerns people may fall into debt arrears as a result.

The mayor’s concerns have been echoed by a local mental health charity which estimates 85 per cent of its service users will be “adversely affected” by the new scheme.

Shahan Islam, services manager at Mind in Tower Hamlets and Newham, said many of its client group are substance abusers and so money management was of concern “where lump sums may get spent quickly leaving them short in terms of bills, rent, food and clothing”.

He said: “In some situations this has led to relapses, social isolation and debt problems which have exacerbated their mental health leading to self-harming and suicidal ideation.”

However, the Department for Work and Pensions (DWP) insists that Universal Credit has simplified the system, reducing the amount of fraud and resulting in savings for the taxpayer.

Minister for welfare reform, Lord Freud said: “The vast majority of Universal Credit claimants who are in work are actively looking for ways to increase their hours and income.

“In this way, Universal Credit is delivering on our commitment to move to a higher wage, lower tax, and lower welfare society, where everyone has the support and opportunity to get on in life.”

The new benefit replaces Jobseeker’s Allowance, income support, employment and support allowance, child tax credits, working tax credits and housing benefit.

It is being rolled out gradually at Jobcentres across Stratford, Plaistow, Hornchurch and Canning Town.

Claimants of Jobseeker’s Allowance, the first benefit to be affected, will be contacted by Jobcentre Plus informing them what they will need to do.

Advance payments for individuals struggling to pay their rent during this period will be available from Jobcentre Plus.

Newham is one of the last boroughs to implement the central government measure, introduced by Work and Pensions Secretary Iain Duncan Smith in October 2013.

It has been viewed as the biggest shake-up of the welfare system since its introduction in the 1940s.

For further information, visit click here or call the Universal Credit helpline on 0345 600 0723.

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